High yield ETFs and passives may struggle in new phase of the credit cycle

Although the pandemic certainly ended one economic cycle and began another, the Covid-inspired downturn was relatively brief. In the wake of the economic downturn, massive monetary stimulus and fiscal bailouts muted the credit cycle and limited the number of defaults. Within two months, the US economy was expanding and the cycle began again. Even though this current cycle is barely two years old, we nevertheless see storm clouds on the horizon. Inflation continues to run hot. To fight it, the Federal Reserve is committing to hiking interest rates, which is usually enough to end most econ...